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The President Surrenders?

Leo Kolivakis's picture




 

Nobel-Prize winning economist Paul Krugman isn't happy with the $2.4 trillion debt deal that just passed the US House. In his NYT's op-ed piece, he opines, The President Surrenders:

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

 

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.


Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

 

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.


Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

 

And then there are the reported terms of the deal, which amount to an abject surrender on the part of the president. First, there will be big spending cuts, with no increase in revenue. Then a panel will make recommendations for further deficit reduction — and if these recommendations aren’t accepted, there will be more spending cuts.


Republicans will supposedly have an incentive to make concessions the next time around, because defense spending will be among the areas cut. But the G.O.P. has just demonstrated its willingness to risk financial collapse unless it gets everything its most extreme members want. Why expect it to be more reasonable in the next round?

 

In fact, Republicans will surely be emboldened by the way Mr. Obama keeps folding in the face of their threats. He surrendered last December, extending all the Bush tax cuts; he surrendered in the spring when they threatened to shut down the government; and he has now surrendered on a grand scale to raw extortion over the debt ceiling. Maybe it’s just me, but I see a pattern here.

Did the president have any alternative this time around? Yes.

 

First of all, he could and should have demanded an increase in the debt ceiling back in December. When asked why he didn’t, he replied that he was sure that Republicans would act responsibly. Great call.

 

And even now, the Obama administration could have resorted to legal maneuvering to sidestep the debt ceiling, using any of several options. In ordinary circumstances, this might have been an extreme step. But faced with the reality of what is happening, namely raw extortion on the part of a party that, after all, only controls one house of Congress, it would have been totally justifiable.

At the very least, Mr. Obama could have used the possibility of a legal end run to strengthen his bargaining position. Instead, however, he ruled all such options out from the beginning.

 

But wouldn’t taking a tough stance have worried markets? Probably not. In fact, if I were an investor I would be reassured, not dismayed, by a demonstration that the president is willing and able to stand up to blackmail on the part of right-wing extremists. Instead, he has chosen to demonstrate the opposite.


Make no mistake about it, what we’re witnessing here is a catastrophe on multiple levels.

 

It is, of course, a political catastrophe for Democrats, who just a few weeks ago seemed to have Republicans on the run over their plan to dismantle Medicare; now Mr. Obama has thrown all that away. And the damage isn’t over: there will be more choke points where Republicans can threaten to create a crisis unless the president surrenders, and they can now act with the confident expectation that he will.

 

In the long run, however, Democrats won’t be the only losers. What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation’s economic security, gets to dictate policy? And the answer is, maybe it can’t.

Love him or hate him, Krugman has a point. You can listen to him below speaking with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." I also think this deal is a huge success for Republicans because there was no compromise: it's all about cuts in spending with no increase in taxes.

And Krugman is right, unemployment will get worse and so will the debt and deficit as more and more people enter the ranks of permanently unemployed. It's a disaster for the real economy but probably good for the stock market. I watched today's action and it played out like a perfect script. They sold the news, hedge funds and bank prop desks had their algorithmic trading computers working overtime, scooping up shares on the cheap, and by the end of the day, the stock market recovered all its losses.

And what about that ISM manufacturing report? Everyone made a huge stink about it dropping to a lower-than-expected 50.9. I say big deal, it's still over the critical threshold of 50, which signals expansion in manufacturing activity. Analysts want to paint doom and gloom everywhere but I think people need to take a step back and analyze economic data more carefully. The ISM report wasn't as bad as the bears made it out to be.

Finally, President Obama caved in to the Republicans, pissing off extreme left-wing and right-wing factions. He probably did not want to take a chance that a US debt default would take place under his watch. I don't blame him but now he and Congress have more pressing issues to deal with, namely, the jobs crisis. Unless that is dealt with forcefully, this deal will come back to haunt them.

 

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Mon, 04/23/2012 - 03:19 | 1717562 meltonk
meltonk's picture

Genuinely amazing and also mind-blowing articles. What makes it the both is the genuine, freshness and the newer ways of presenting your articles that make it very interesting to read

Tue, 08/02/2011 - 10:04 | 1516534 Leo Kolivakis
Leo Kolivakis's picture

***Feedback from Michael Hudson***

The well know economist, Michael Hudson, wrote his thoughts on the debt ceiling and sent me these critical comments:

Obama IS the Tea Party president. He’s not compromising with the Republicans. He’s dragged his party to support their position, appointed Wall Street chiefs of staff to support Blue Dog Democrats against any opponents of his wars in Libya, Afghanistan etc. He’s Joe Lieberman in black face. In other words, his job was to deliver the black vote and block opposition from the Democratic strongholds to his Tea Party policy. No wonder the progressives are turning against him.

Tue, 08/02/2011 - 12:46 | 1517124 malek
malek's picture

It is really amusing to what lengths certain person will go, to try to discredit the Tea Party.

Wed, 01/18/2012 - 23:19 | 2076854 haibop
haibop's picture

pretty impressive. junk car for cash

Tue, 08/02/2011 - 12:31 | 1517035 Gene Parmesan
Gene Parmesan's picture

Sheer idiocy. You and Michael Hudson are both morons if you believe this. Study the man's history and open your eyes to reality.

Tue, 08/02/2011 - 07:00 | 1516071 Shoegazer
Shoegazer's picture

I don't think the Leos and Krugmans of the world have any thing to worry about.  I guarantee you that the government will spend more next year than they did this year in spite of these OMG DRACONIAN BUDGET CUTS!!1!

Tue, 08/02/2011 - 06:44 | 1516062 GCT
GCT's picture

I am having a blast reading these discussions.  Knowing all of this will be scrapped next year except the new debt ceiling.  The new budget cycle hits and off they again will go to the races of spending your money and scrapping the old plan.   Of course we have an election year so we may have to wait until 2013.

Krugman had his chance and his economics did not work.  Time to move on and admit your plan failed.

Tue, 08/02/2011 - 08:17 | 1516168 bourbondave
bourbondave's picture

Don't forget that the gov't doesn't even bother with a budget anymore.

Tue, 08/02/2011 - 06:43 | 1516061 THE DORK OF CORK
THE DORK OF CORK's picture

Beacuse technology & industry has been exported spending only goes to consumption now - so therefore its always a extractive process.

Tue, 08/02/2011 - 06:27 | 1516058 Pete15
Pete15's picture

It would be awesome if Krugman got his shit together and realized Obama is a corporatist, maybe even made a public statement...

Tue, 08/02/2011 - 06:06 | 1516047 DeltaDawn
DeltaDawn's picture

Yes. Reading the details of the stimulus package made me realize our leadership was on a damaging path, so I bought PMs. This has been positive, for me.

Tue, 08/02/2011 - 05:28 | 1516031 Fred123
Fred123's picture

Sorry Paul, but the Depression of 1920-21 says you are wrong.

Tue, 08/02/2011 - 05:24 | 1516028 StychoKiller
StychoKiller's picture
Gabrielle Giffords votes for debt limit deal.

 

Proof yet again, that only brain-damaged Progressive/Socialists are in charge in D.C.!

Tue, 08/02/2011 - 08:56 | 1516281 Leo Kolivakis
Leo Kolivakis's picture

You're a sick fuck for writing such a stupid comment! Gabrielle Giffords has courage, honor, heart and brains, something you and your kind will never possess.

Tue, 08/02/2011 - 04:44 | 1516000 FunkyOldGeezer
FunkyOldGeezer's picture

Playing devil's advocate and NOT following herd mentality:

Is it me, or do I detect a certain amount of 'above normal' Tea Partyesque brainwashed, zealous belief from most ZHers these days? No wonder Leo gets a bum wrap on here.

Seems to me, most posters/commentatiors are just following tribe rules by their ridicule/trashing of others with a different viewpoint. Exactly what happens in the 'nasty' world of politics.

If Leo/Krugman don't have a clue and are 'bought', where does that leave all of you?

Stones/glasshouses, throw, NOT

I'm just asking.

 

Tue, 08/02/2011 - 04:02 | 1515967 yabs
yabs's picture

what do you mean he has a poiunt?

he has no point and no fucking clue what he is talking about

he says we shouldnot raise the debt ceiling but we should not cut governmnet spending?

how can you have one without the other

he forgets we live in a debt based ssyetm

its the excessive governmnet spending and hence debt that got us into this mess

Keynesian tactics may work when government debt is low but how can it work when you are bankrupt

this guy is either a shill or a complete fucking retard

Tue, 08/02/2011 - 03:47 | 1515954 jomama
jomama's picture

for the life of me, i can't figure out who is the bigger tool, krugman or leo?

Tue, 08/02/2011 - 03:31 | 1515941 Bobportlandor
Bobportlandor's picture

What do you do when your policies dug the country into a deeper hole?

What do you do when you realize that nothing can stop us from crashing?

Running for cover, blame the President, blame the republicans, blame the dems.

But never take the blame for your fuckup.

Blame It On The Rain

You got me caught in all this mess

 

http://www.youtube.com/watch?v=NwrL9MV6jSk

Jack ass!

Tue, 08/02/2011 - 02:59 | 1515920 dolly madison
dolly madison's picture

I think both sides are bought.  Obama didn't win because he wasn't meant to win.  The game is Reps ask for things, Dems fight and lose.  The government may keep on spending lots, but there will be austerity for the people.  The spending will be on war and corporate welfare because DC serves the banksters and corporate elite.  They do not serve the people anymore.  But, they had to put in the super congress as a way to take from the people more trickily.

Tue, 08/02/2011 - 04:49 | 1516005 Ying-Yang
Ying-Yang's picture

Hello Dolly...

The establishment of a “Super Congress” will completely demolish the credibility and the authority of the system of elected representatives. It represents another final nail in the coffin of the American Republic and its replacement with an executive dictatorship run by the political elite.

Tue, 08/02/2011 - 01:33 | 1515838 ManyWeapons
ManyWeapons's picture

Are Leo And Krugman an item?

Tue, 08/02/2011 - 03:46 | 1515953 jomama
jomama's picture

i heard Leo and Yves Smith are trying to line up a Krugman ménage à trois.  

viagra and whipped cream to be had by all!  and for the love of all that is good in the world, please don't film it.

Sat, 03/17/2012 - 13:37 | 2265054 haibop
haibop's picture

Hmmmm... 1 hour

Tue, 08/02/2011 - 01:22 | 1515815 cranky-old-geezer
cranky-old-geezer's picture

I have a gut feeling this debt ceiling sell-out is going to motivate a certain ANA to come together much faster.

I suspect they've had just about enough of America's grand theft of world wealth and resouces, as indicated by Putin's comment today, characterizing the American government as parasites on the rest of the world.

Tue, 08/02/2011 - 01:24 | 1515824 Vic Vinegar
Vic Vinegar's picture

Maybe it's just me, but it seems as though you've opened up a lot more with your comments since you've switched to a better avatar.  Keep up the good work.

Tue, 08/02/2011 - 01:18 | 1515814 Arch Duke Ferdinand
Arch Duke Ferdinand's picture

Friends, every passing day, is one day closer to World War.

...Before Syrian Dictator folds, Syria will bomb Israel.

...Before North Korea folds, North Korea will bomb South Korea

...Egypt falls into total chaos....98 million citizens with no jobs.

...Japan declares Tokyo and Northern Japan "uninhabitable".

etc etc etc

Tue, 08/02/2011 - 04:10 | 1515976 falak pema
falak pema's picture

I know, the four western states of Canada are the only safe haven on earth...lucky you!

Tue, 08/02/2011 - 01:17 | 1515811 Bear
Bear's picture

"Paul Krugman isn't happy with the $2.4 trillion debt deal that just passed the US House" ... What a joke ... I would bet it will end up to be a $2.40 cut

Tue, 08/02/2011 - 00:43 | 1515761 Vic Vinegar
Vic Vinegar's picture

Watching this interview live it was a kick to hear Krugs say he was down with the idea of a VAT.

Mad props to you Leo for having the balls to post this on this site.

Tue, 08/02/2011 - 01:05 | 1515797 akak
akak's picture

Mad props to you Leo for having the balls to post this on this site.

Do not confuse the possession of a firm pair of cojones with the lack of a neocortex.

Tue, 08/02/2011 - 01:13 | 1515803 Vic Vinegar
Vic Vinegar's picture

I've been reading this site long enough to know that Leo does indeed have balls...as do you.

The neocortex comment is in the eye of the beholder.  

If I could do a Casey Kasem-style dedication between you and Leo it would be this tune:

http://www.youtube.com/watch?v=p8_FOQ7-P30

Tue, 08/02/2011 - 01:02 | 1515789 Freddie
Freddie's picture

Krugman was on the board of Enron.  Not the main board but a supervisory board of the largest corporate fraud in history.  There are no cuts.  Obama will just keep spending to oblivion. He is Son of Mugabe.

Krugman is a fraud and not even a middling economist.

 

Tue, 08/02/2011 - 01:04 | 1515795 Vic Vinegar
Vic Vinegar's picture

All economics is fraudulent.  At least Kruggers is entertaining.  I laugh every time I see his bug-eyes.

Tue, 08/02/2011 - 03:50 | 1515958 jomama
jomama's picture

krugman's form of 'entertainment' is on the level of microwaving kittens.  except that is probably funnier.

Tue, 08/02/2011 - 00:29 | 1515736 roadlust
roadlust's picture

Thank you Leo, for a sane voice around here.

Tue, 08/02/2011 - 01:02 | 1515790 akak
akak's picture

You have a delightfully absurdist sense of humor!

Mon, 08/01/2011 - 23:56 | 1515653 akak
akak's picture

Hey leo, did anyone ever tell you that you're cute when you're an idiot?

And you're almost always cute.

Mon, 08/01/2011 - 23:45 | 1515628 LRC Fan
LRC Fan's picture

Not sure who's worse, Leo or Krugman. 

The very fact that cutting government spending will slow the economy is the exact reason we need to cut government spending and basically start over and get our economy on a sustainable path, free of government injected heroin known as "stimulus."  How can we possibly rely on a government that spent trillions more than it brought in?  All of the sudden they will turn the economy around?  Lol.  Krugman reminds me of a failed gambler.  The only reason he didn't hit it big last night was he just needed more money and more spins, and then he would hit the jackpot.  In fact, 15 minutes after he ran out of money, some lady hit the jackpot.  See!  More spending is the cure!

Buy silver, sit back, and laugh your ass off at posts like this.  It's fun. 

Tue, 08/02/2011 - 01:03 | 1515792 Freddie
Freddie's picture

+1

Mon, 08/01/2011 - 23:40 | 1515627 myshadow
myshadow's picture

There are a lot of wingnut trolls here that didn't seem to LISTEN to what Krugman. His analysis is spot on and to some extent he is still giving the President a pass.  The fact is the President is a stealth republican.

When he hears a 'republican' position he immediately moves to it, and then begins the 'bargain'.

His actions aren't 'caving' because he actually believes the position he takes.  He has always presided by figleaf.  He used leiberman and nelson during health care debate to ensure the corporate position was secure and the Public Option was squashed, he used Elizabeth Warren to placate the base in Fin Reg until he finally threw her under the bus, he in essence poked the tea party to move the goal posts to the hard right so he could 'cave' and save the baby like solomon.

I would junk the rubes who are dissing Leo, he has a point.  Think about it.

Tue, 08/02/2011 - 15:16 | 1517838 dxj
dxj's picture

O is W's 3rd term.

Tue, 08/02/2011 - 01:09 | 1515801 Bananamerican
Bananamerican's picture

not "stealth" exactly....

"Mr. Obama keeps folding in the face of their (R's) threats. He surrendered last December, extending all the Bush tax cuts; he surrendered in the spring when they threatened to shut down the government; and he has now surrendered on a grand scale to raw extortion over the debt ceiling. Maybe it’s just me, but I see a pattern here."

No, Krugman is as blind as a bat!

Like so many on the Left, Krugman sees a "Democrat" and a "Black man" and simply cannot begin to imagine what is utterly transparent to an independent like myself...

Obama is a Corporatist...just like W. before him...

he is not "capitulating to Republicans" he is enabling corporate policy.

I don't listen to speeches or MSM regurgitations... I look at enacted POLICY...

"actions speak louder than words"...don't they still teach that to kids? (& middle aged economists?)

Mon, 08/01/2011 - 23:37 | 1515610 Pay Day Today
Pay Day Today's picture

Tax $150B off the corporates and the richest 1% Americans, and use those funds to produce three or four million infrastructure, R&D, social work and community based jobs for unemployed Americans.

Not rocket science is it?

 

 

Tue, 08/02/2011 - 15:20 | 1517859 dxj
dxj's picture

When are people going to get it in their thick skulls that government doesn't create anything that it doesn't first take from another?

How about the government sell vast tracks of land and mineral rights that it has held hostage? This would eliminate the need to borrow this year and make is possible for drillers and miners to create new jobs.

Tue, 08/02/2011 - 12:55 | 1517192 John_Coltrane
John_Coltrane's picture

No its theft.  Rocket science is a productive enterprise requiring both talent and hard work-soemthing parasites like Krugman and Obama don't understand.  When you take something from somebody because you think you're "entitled" to it its still theft.  Think Somali pirates!

And envy is still one of the 7 deadly sins.  When you punish producivity you'll get less of it.  The words "social" and "work" should never be used in the same sentence. 

Now get thee to the huffington post! (Remember:  "Get thee to a nunnery")

By the way, freezing the debt at the current level would just take us back to 2004 levels of spending.  Too bad we didn't do that.

"You can't solve a debt problem by taking on more debt"  You'll likely want to apply that to your personal life I'm guessing.

Tue, 08/02/2011 - 01:09 | 1515800 Freddie
Freddie's picture

I have seen ths Hope & Change "infrastructure" BS all over the place.  They have dug up sidewalks and streets and installed pavers everywhere.  They looked like shit in abount three months and start crumbling. 

If you are going to do stupid shit make work payola & kickbacks from the contractor back to liberal politician "jobs" like this - at least use cobble stones like european cities.  They look even shittier but they last forever.  You can run M1 tanks over those stones.  

By the way - for there types of "jobs" - whites need not apply.  He even said so back in the 2008 election/coup.  I saw one or two whites on most of these "jobs."

Tue, 08/02/2011 - 00:27 | 1515733 sun tzu
sun tzu's picture

How about the $1.5 trillion annual deficits?

 

social work and community based jobs for unemployed 

Please, no more ACORNs and nuts

Mon, 08/01/2011 - 23:35 | 1515609 Hulk
Hulk's picture

Concerning the debt to gdp ratio, post WWWII, Krugman fails to state that oil was $1.63 a barrel ($18 bucks, inflation adjusted to today) and that we were producing it ourselves. These conversations simply cannot be made anymore without discussing the high price of oil and its increasing scarcity...

Tue, 08/02/2011 - 01:16 | 1515810 Nathan Muir
Nathan Muir's picture

Krugman also ignores the problems around debt as a % of gdp growing faster than gdp, and debt servicing costs gorwing faster than gov reveneue.  He actually wants to increase these rates, believing this can magically create organic growth somehow.  The market has already said enough, it took QE2 and the printing press to cover the last half trillion in debt.  The bernank will come to the rescue again and print us some new debt, and I bet it coincides with the amount of the debt ceiling hike.  I haven't read a Leo post in over a year, taking another break.

Mon, 08/01/2011 - 23:31 | 1515597 Winston Smith 2009
Winston Smith 2009's picture

What's all this crap about Obama losing?

http://market-ticker.org/akcs-www?blog=Market-Ticker&page=2

Excerpt: "See, the Bush Tax Cuts and the FICA holiday expire at or before the end of 2012.  And guess who's going to be President then - either having just been re-elected or much worse, as a lame duck?

That's right - Obama.

So Republicans, and most-importantly "Tea Partiers" - how many of you want to keep your jobs?  Because if you do, you had damn well better not allow this piece of crap from Reid/Boehner to pass!  If this bill passes then every Republican who votes for it needs to face a primary challenge and every Democrat needs to be ejected from office.

In other words, we have to eat our peas, and we have to do it now.  The history on this path is clear: Whenever the Congress claims they will both cut spending and raise taxes, the tax increases always happen but the spending cuts never do."

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